Loan Policy Abridged

State Bank of India
INTRODUCTION TO LOAN POLICY
Project SME Gyanshala Capsule Training Programme for Officials handling SME Credit 9.1
State Bank of India
OVERVIEW
Chapters: 1. Introduction 2. Exposure Levels 11. Take-over of Advances 12. Defaulters List of RBI
3. Substantial Exposures 4. CRA Min. Scores / Hurdle Rates 5. Credit Appraisal Stds. 6. Documentation Stds. 7. Delegation of Powers 8. Maturity of Advances 9. Pricing 10. Review / Renewal
13. Credit Monitoring 14. Mid-Corporates

15. NPA Management 16. Deviations : Major & Minor 17. Advances to P Seg. 18. Export Credit 19. Priority Sector 20. Services Sector
State Bank of India
1. INTRODUCTION
The present Loan Policy Document of the Bank is effective 26th December 2003. It is aimed at accomplishing the Banks Mission. It is an embodiment of the Banks approach to sanctioning, managing and monitoring Credit Risk.
It aims at making the systems and controls effective.

The Policy applies to all domestic lendings. The Central Board of the Bank is the apex authority in formulating all matters of policy in the Bank.
State Bank of India
2. EXPOSURE LEVELS
Loan Policy recognises the need for measures aimed at better Risk Management and avoidance of concentration of Credit Risk.
With this in view, limits have been prescribed for Banks exposure to single borrower, group of borrowers, specific industry / sector, etc. The primary guiding factors for fixing ceiling on exposures are the Prudential Exposure Norms prescribed by RBI.
State Bank of India
2. EXPOSURE LEVELS
PRUDENTIAL EXPOSURE NORMS OF RBI
Maximum Exposure of 15% of Capital Funds 40% of Capital Funds : : And upto 20% of Capital Funds 50% of Capital Funds : : For Single Borrower For a Group For Single Borrower For a Group
provided the additional exposure is on account of infrastructure projects.
State Bank of India
2. EXPOSURE LEVELS
The following Exposure Levels are prescribed. It would mean Maximum Aggregate Credit Facilities (FB & NFB) other than against Specified Securities:
a)
b) c)
Individuals
(Partnerships, JHF, Assn.)
:
: :
Rs. 25 crores
Rs. 100 crores As per Prudential Exposure Norms of RBI
Non-Corporates Corporates
State Bank of India
3. SUBSTANTIAL EXPOSURE LEVELS

Substantial Exposure Norms are in-house norms set within the Prudential exposure Norms and are intended to help in monitoring credit concentrations. These should not be deemed as a cap on further exposures and should not come in the way of booking bankable business.
State Bank of India
3. SUBSTANTIAL EXPOSURE LEVELS

While Prudential exposure Norms of RBI would be the guiding factor for monitoring credit concentrations in terms of exposure as defined by RBI, the following levels of exposures will be deemed to be Substantial Exposures for triggering internal monitoring mechanism: In excess of 7.50% of Capital Funds 15% of Capital Funds : : For Single Borrower For a Group
State Bank of India
4. CRA MINIMUM SCORES / HURDLE RATES

The CRA models adopted by the Bank take into account all possible factors which go into appraising the risks associated with a loan. These are categorised into Financial, Business & Industry and Management Risks and are rated separately. To arrive at the overall risk rating, the factors duly weighted are aggregated and calibrated to arrive at a single point indicator of risk associated with the credit decision. The overall score out of a maximum of 100 marks is rated on a 16 point scale from SB-1 to SB-16.
State Bank of India
5. CREDIT APPRAISAL STANDARDS

Certain basic parameters have evolved over the years. These could be broadly classified as (A) Qualitative and (B) Quantitative.
A.
Qualitative Parameters: The proposition is examined from the angle of viability and also from the Banks prudential levels of exposure to the Borrower, Group and Industry. Our past experience, if any, is also taken into account. Opinion Reports from existing bankers and published data are also perused.
State Bank of India

B. Quantitative Parameters: i) Working Capital:
i.
Liquidity : Mfg.: CR of 1.33 will generally be considered as a benchmark level of liquidity. However, the approach has to be flexible. CR of 1.33 is only indicative and may not be deemed mandatory. Others: For FBWCL upto Rs. 5 crores, CR of min. 1.00 and for FBWCL above Rs. 5 crores, CR of min. 1.20. NWC : Movements in NWC to be watched to ascertain whether there is a mismatch of LTS vis--vis LTU for purposes not readily acceptable to the Bank.
ii.
State Bank of India

B. Quantitative Parameters: i) Working Capital:
iii. Financial soundness : This will be dependent upon the owners stake or the leverage. Here again, the benchmark will be different for Mfg., Trading, HP & Leasing concerns. For Mfg. ventures, a TOL / TNW ratio of 3 is reasonable, but deviations in selective cases may be accepted. For others, Max. 5.00.
State Bank of India

iv. Turnover : The trend in turnover is carefully gone into both in terms of quantity and value as also market share.
v. Profits : While NP is the ultimate yardstick, Cash Accruals conveys the more comparable picture in view of changes in rate of Depreciation and taxation which may have taken place in intervening years. Non-Operating income also to be excluded.
vi. Credit Rating : Wherever the company has been rated by a Credit Rating Agency for any instrument such as CP / FD, this will be taken into account while arriving at a final decision.
State Bank of India

1. The norms for financing units under T&S Sector are: The C/R and TOL / TNW ratio (as per audited B/S not older than 12 months) should be as per the indicative levels given below: C/R of not below 1 is acceptable upto FBWCL of Rs. 5 cr. For FBWCL of above Rs. 5 cr., C/R upto 1.20 may be considered acceptable, depending upon the activity. TOL / TNW ratio higher than 3 and upto 5 would be permissible depending on the type of activity.
State Bank of India

2. The unit should have earned profits (post-tax) in each of the immediately preceding 3 years. However, if the unit has been in existence for a lesser period, it should have earned Net Profit (post-tax) in the preceding year of operation in which it has been in operation.
State Bank of India

B. i. Quantitative Parameters: ii) Term Loan / DPG: Technical Feasibility & Economic Viability : To be vetted by the Bank. If required, second opinion from TCC / Consultants of Bank / SBI Caps may be sought. Promoters Contribution* : To be at least 30% (Mfg.) (20% for others) in the total equity. However, this is not a definitive benchmark.
ii.
* Unsecured Loans brought in by the promoters and their close friends and relatives may be treated, except in the case of Non-Corporates, as Quasi-Equity, highly selectively. The standard basic covenant that has been laid down in this regard should invariably be complied with under such circumstances.
iii. iv.
DSCR (Net) : Not to be normally below 2. DSCR (Gross) : Not to be normally below 1.75.
v.
Margin : This would depend on Debt / Equity gearing for the project. To be maximum 2 : 1. Deviations may be permitted very selectively.
State Bank of India
6. DOCUMENTATION STANDARDS
The ultimate objective of documentation is to serve as primary evidence in any dispute between the Bank and the borrower and for enforcing the Banks right to recover the loan amount together with interest thereon, through a Court of Law as a final resort, in the event of all other recourses proving to be of no avail. Documentation is a continuous and ongoing process covering the entire duration of an advance comprising the following stages: Pre-execution formalities Execution of documents Post-execution formalities Protection from Limitation / Safeguarding Securities
State Bank of India
7. DELEGATION OF POWERS
A carefully formulated Scheme of Delegation of Powers is in operation in the Bank in respect of Financial and Administrative matters for exercise by the various functionaries. This is based on the premise that an executive is required to exercise only those powers which are related to the responsibilities and duties entrusted to him / her.
An appropriate control system is also in operation in tune with the Delegation Structure.
State Bank of India
8. MATURITY OF BANKS ADVANCES

The maturities of different components on the SBIs assets portfolio, ideally are determined, based on the composition of its resources pool.
The maturity of any Term Loan, including moratorium, should not normally exceed 8 years, except cases under CDR Mechanism / Rehabilitation Packages approved by the Bank, Infrastructure Loans, HTLs to individuals, Education Loans and ATLs under approved schemes.
In cases where maturity exceeds 8 years, (except in case of exempted categories mentioned above) the loans should be administratively cleared by the appropriate authorities as prescribed in Loan Policy.
The tenor of the loan will be reckoned from the day of first draw-down.
State Bank of India
9. PRICING
Pricing in the Bank can be divided into interest pricing and non-interest pricing. Pricing of loans upto Rs. 2 lacs will be as prescribed by RBI.
In line with RBI guidelines, the Bank announces from time to time its single Benchmark Prime Lending Rate (BPLR), i.e., reference / indicative rates at which the Bank would lend to its best customers. The BPLR would be referred to as State Bank Advance Rate (SBAR) in our Bank.
Interest rate without reference to SBAR could be charged in respect of certain categories of loan / credit like discounting of bills, etc.
State Bank of India
10. REVIEW / RENEWAL OF ADVANCES

Working Capital Facilities are granted by the Bank for a period of 1 year and thereafter they are required to be renewed each year, i.e., fresh sanction is accorded for the limits. Where, however, renewal is not possible for some reason, sanction for the continuance of the limits is obtained in each case by reviewing the facilities.
Term Loans which are irregular will be reviewed once in 6 months.
State Bank of India
11. TAKE-OVER OF ADVANCES

Norms for take-over of advances under C&I or SSI (including T&S Sector) segments will be as under: i. The advance to be taken over should be rated SB-3 (old model) or above. ii. The unit should score the minimum scores as prescribed, under the various risk segments as per revised CRA. iii. The account should have been a Standard Asset in the books of the other Bank / FI during the preceding 3 years. iv. The unit should have earned Net Profits in each of the immediately preceding 3 years. (If in operation for a lesser period, Net Profit in the preceding year of operation).
v.
The TL proposed to be taken over should not have been rephased, generally, by the existing FI / Bank after commencement of commercial production.
State Bank of India
11. TAKE-OVER OF ADVANCES

vi. The remaining period of scheduled repayment of the Term Loan should be atleast 2 years, when only TLs are taken over. vii. For takeover of existing TLs, while the original time frame for repayment will be generally adhered to, flexibility may be allowed in the quantum of periodical repayments. If sanction of fresh TL is proposed alongwith the takeover, the schedule of repayment for the existing TLs, if necessary, may be permitted to extend upto 8 years. [The norms at v, vi and vii above are not applicable for take-over of WCL]
State Bank of India
12. FACILITIES : RBIS LIST OF DEFAULTERS

The Directors of any company may be classified as Promoter / Elected / Professional / Nominee / Honorary Directors. RBI has been collecting and circulating information on defaulting companies among Banks / FIs, including names of directors of such companies. RBIs List of Defaulters is given due cognizance in the appraisal process. A general policy on the issues relating to sanction / continuation of credit facilities to such companies whose directors are in RBIs List of Defaulters has been put in place by the Bank. No additional facilities shall be granted by the Bank to the listed Wilful Defaulters.
State Bank of India
13. CREDIT MONITORING & SUPERVISION

The Bank has put in place an effective post-sanction process to facilitate efficient and effective Credit Management and to maintain high level of Standard Assets.
The post-sanction activity can be classified into:

Follow-up function Supervision function
Monitoring & Control function

on various aspects of effective place. E.g.,: Post-sanction functionaries, Reporting for Statement of Stocks & Book-
Detailed operative guidelines credit monitoring are in responsibilities of different control, Security documents, Debts, etc.
State Bank of India
14. ADVANCES TO MID-CORPORATES

Financing Mid-Corporates would be a thrust area for the Bank. Mid-Corporate Account:
1.
2. 3.
Annual turnover between Rs. 50 crores and Rs. 500 crores, or

Aggregate Working Capital Limits (Existing or proposed) of Rs. 10 crores or more from our Bank, or Term Loan (Existing or proposed) of Rs. 10 crores or more from our Bank.
State Bank of India
15. NPA MANAGEMENT

The Bank has a separate NPA Management Policy which seeks to lay down the Policy on Management & Recovery of NPAs and proactive initiatives to contain Net NPAs to less than 1.10% of the Banks total loan assets by March 2009, in conformity with international standards. The Policy lays stress on a system of early identification and reporting of all existing and potential loans as a first step towards management of NPAs. Such an Early Alert System which captures early warning signals is an integral part of the Banks Risk Management process.
State Bank of India
16. MAJOR & MINOR DEVIATIONS

Deviations from the Banks Loan Policy have been classified as Major and Minor based on: Criticality of the norms from asset quality angle
General compliance levels

Need for flexibility
Proposals with Major deviations from the Banks laid down policies would be required to be sanctioned by a higher authority. Deviations not specifically categorized as Major would be considered as Minor, and may continue to be permitted selectively by the SA, except where a separate structure has been laid down involving approval by some other authority.
State Bank of India

With respect to specific products / schemes, deviations (other than Major Deviations) in general norms such as eligibility criteria, quantum of finance, etc., are sometimes required to be considered for business or strategic considerations. Where the loan is to be sanctioned by CCC-I / MCG / CAG Committee and below, such deviations will be approved by the CGM (Circle / MCG / CAG) concerned, where necessary. Where loans are sanctioned by CC, such deviations may be permitted by the SA. In case the deviation is sought on a stand-alone basis, in respect of sanctions by CCCC / WBCC, necessary approval will be given by the Group Executive concerned. In respect of sanctions by ECCB, approval will be accorded by CCCC.
State Bank of India

Some of the Major Deviations listed by the Bank are: FB Exposure to a particular industry not to exceed 15% of the total FB exposure (ECCB)
NFB Exposure at the whole-Bank level not to exceed 2 times the FB Exposure (ECCB)
Maturity of Term Loans, including moratorium, generally not to exceed 8 years / 10 years (NCC / SA / CCC-I / SA) General Exposure Norms (ECCB) CRA linked minimum scores (CCC-II / SA / CCC-I / SA)
Hurdle rates (CCC-I / SA)

Credit facilities to companies whose directors are in RBIs List of Defaulters (CCC-I / SA)
State Bank of India
17. ADVANCES TO PERSONAL SEGMENT

While opportunities for lending to Infrastructure, MidCorporates and T&S Sector are considerable, the growth opportunities are even more in Personal Banking.
The Bank has the brand name, extensive distribution system, large customer base and ever improving technology utilisation to tap the tremendous growth potential in this sector. The Bank is aiming at increasing the share by approximately 2% annually.
Strategies being adopted include creating special delivery platforms like PBBs, Housing Finance Branches and Loan Divisions.
State Bank of India
18. EXPORT CREDIT

Export Sector has been recognised as a thrust area considering its importance and contribution of this sector to the economy.
Therefore, the sector is being presently extended finance at concessional rates, with flexibility in financing norms.
Export Finance is by and large regulated through the directives / guidelines issued by RBI, DGFT & FEDAI. Export Finance is broadly classified into 2 categories Pre-Shipment Finance
Post-Shipment Finance
State Bank of India
19. ADVANCES TO PRIORITY SECTOR

Advances to Agriculture & Allied Agricultural Activities, SSIs, Transport Operators, Retail Trade, Small Business, Professional & Self Employed Persons, Education Loans & Housing Loans are considered as Priority Sector Advances. At least 40% of the Net Bank Credit of the Bank should be to Priority Sector, 18% to Agriculture and 10% to the weaker sections of the society as a part of the Priority Sector.
State Bank of India
20. ADVANCES TO SERVICES SECTOR

As per WTO, services can be divided into 12 different sectors: 1. Communication 2. Business Services, including Professional & Computer 3. Educational 4. Environmental 5. Health 6. Financial Services like Insurance & Banking 7. Tourism & Travel 8. Recreational & Cultural 9. Transport 10. Constructional & Engineering 11. Personal, Community & Social 12. Miscellaneous & Others
State Bank of India
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Loan Policy Abridged

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State Bank of India

INTRODUCTION TO LOAN POLICY

State Bank of India

13. Credit Monitoring 14. Mid-Corporates

State Bank of India

It aims at making the systems and controls effective.

State Bank of India

State Bank of India

provided the additional exposure is on account of infrastructure projects.

State Bank of India

State Bank of India

3. SUBSTANTIAL EXPOSURE LEVELS

State Bank of India

3. SUBSTANTIAL EXPOSURE LEVELS

State Bank of India

4. CRA MINIMUM SCORES / HURDLE RATES

State Bank of India

5. CREDIT APPRAISAL STANDARDS

State Bank of India

5. CREDIT APPRAISAL STANDARDS

State Bank of India

5. CREDIT APPRAISAL STANDARDS

State Bank of India

5. CREDIT APPRAISAL STANDARDS

State Bank of India

5. CREDIT APPRAISAL STANDARDS

State Bank of India

5. CREDIT APPRAISAL STANDARDS

State Bank of India

5. CREDIT APPRAISAL STANDARDS

State Bank of India

State Bank of India

State Bank of India

8. MATURITY OF BANKS ADVANCES

State Bank of India

State Bank of India

10. REVIEW / RENEWAL OF ADVANCES

Term Loans which are irregular will be reviewed once in 6 months.

State Bank of India

11. TAKE-OVER OF ADVANCES

State Bank of India

11. TAKE-OVER OF ADVANCES

State Bank of India

12. FACILITIES : RBIS LIST OF DEFAULTERS

State Bank of India

13. CREDIT MONITORING & SUPERVISION

The post-sanction activity can be classified into:

Monitoring & Control function

State Bank of India

14. ADVANCES TO MID-CORPORATES

Annual turnover between Rs. 50 crores and Rs. 500 crores, or

State Bank of India

15. NPA MANAGEMENT

State Bank of India

16. MAJOR & MINOR DEVIATIONS

General compliance levels

State Bank of India

16. MAJOR & MINOR DEVIATIONS

State Bank of India

16. MAJOR & MINOR DEVIATIONS

Hurdle rates (CCC-I / SA)

State Bank of India

17. ADVANCES TO PERSONAL SEGMENT